Who is a Non-Resident Indian?
Updated: Nov 16
The term "Non-Resident Indian" (NRI) is defined as a citizen of India who resides in a foreign country. Different tax laws apply to Indian residents and non-resident Indians (NRIs) under the Income Tax Act of 1961. After a specific amount of time spent living in India, people of Indian descent are regarded as residents. For taxation purposes, the Act defines what constitutes a resident and an NRI. This article addresses taxation, resident but not ordinarily resident (RNOR) statuses, and NRI statuses. Discover the definition of an RNOR and how your status affects the calculation of taxable income.
Table of Contents
Who is a Non-Resident Indian?
A person who lives abroad under the legal status of an Indian citizen is considered as a Non-Resident Indian (NRI). Due to the fact that they live abroad, NRIs are also known as Overseas Indians. Specific criteria defining the meaning of Non-Resident Indians (NRIs) for legal and tax reasons have been specified in the Indian Tax Act and the Foreign Exchange Management Act 1999 (FEMA).
A person who stays out of India as a citizen of India or as a Person of Indian Origin (PIO) is implied by the FEMA definition of NRI. According to the law, an NRI is an individual who:
Has spent less than 182 days in India in the prior fiscal year
Has left India or is staying abroad for work
Has left India or is staying abroad for professional or business-related activities
Has left India or is staying abroad for any other purpose that suggests they intend to remain outside of India for an ambiguous amount of time.
The length of stay for merchant mariners or navy personnel who operate in international waters varies by region. For instance, a person is known as an NRI if they spend more than 183 days in foreign territorial seas.
Nonetheless, the7y are regarded as Indian citizens if they spend the majority of the fiscal year living within Indian territorial seas. Indian nationals enrolled in universities outside of India are granted the status of Non-Resident Indians, and as such, they are subject to the laws in force.
Rules for NRI Status
The following are the two primary laws that control and specify the guidelines for NRIs in India:
Income Tax Act: This Act regulates NRIs' tax obligations
Foreign Exchange and Management Act (FEMA) - Regulates all investing and transaction activities, NRI bank account establishment, etc.
Under these acts, NRI is defined differently. The Income-tax Act of 1961's definition of NRIs has been discussed in this article.
Benefits for NRIs
The NRI Quota: There is an NRI Quota in India's top educational institutions that accepts PIOs, OCIs, foreign nationals, and NRIs. NRIs who wish to study in India can apply for quota seats in a number of engineering, law, medical, management, and other fields.
Property: NRIs are permitted by the Indian government to own or purchase immovable properties in India as long as they follow the FEMA requirements. There are no legal requirements for NRIs trading real estate in India. All they have to do is complete the purchase-related registration requirements.
Voting Rights: NRI candidates are granted seat reservations by the Indian government in all significant political contests. NRIs are fully eligible to cast ballots in municipal, state, and federal elections.
NRIs' tax advantages: Certain nations and India have a double tax avoidance agreement. According to the rules of this agreement, non-resident Indians (NRIs) who live in any of the participating countries are exempt from paying double taxation on the rental income they receive from their property in India. In India, interest earned on Non-Residential External Accounts (NREs) is completely tax-exempt. For the purpose of pooling their foreign earnings, an NRI establishes an NRE account in India.
Under Section 80C, NRIs are allowed to deduct the following:
Obtaining the premium payment for life insurance
Children's tuition fees
Insurance Plan with Unit Linked Costs
The amount used to pay back the loan's principal that was obtained in order to buy or build a residential property.
A maximum investment of INR 1.5 lakh can be made in ELSS.
NRIs may also deduct expenses under Sections 80D, 80G, 80TTA, 54, and 54EC, subject to specific restrictions.
Downsides of Being an NRI
Non-resident Indians (NRIs) living abroad need to stay up to date on the laws, rules, legal rights, and markets of the nation because failing to do so could have a detrimental effect on their ability to invest and make money.
One of the biggest issues that NRIs in India deal with is double taxation. The government taxes the income that non-resident individuals get from many sources, including capital gains, rental income, mutual fund profits, and NRO accounts. The NRI is obliged to pay taxes if their income from sources inside India exceeds the minimal amount excused from paying taxes.
Non-resident Indians (NRIs) must follow stringent processes, which can take time when interacting with financial or non-financial entities in India. Processing is delayed when multiple background checks are needed to open an NRE or NRO account.
Residential status of Indian citizens working as crew on Indian ships
The duration of stay in India for an eligible voyage will be determined in the following manner for an Indian citizen who is also a member of the ship's crew:
The days from the beginning of the Continuous Discharge Certificate and terminating on the end date of this document, as approved by the Discharge certificate, must not be counted against the number of days that such person has spent in India.
The Merchant Shipping (Continuous Discharge Certificate-cum-seafarer's Identity Document) Rules, 2001, which were created under the Merchant Shipping Act, 1958, must be followed to obtain a Continuous Discharge Certificate.
This certificate of continuous discharge must be for a journey that leaves from any port in India and ends up at any port outside of the country, or it must leave from any port outside of India and end up at any port within the country. [Notification No. F.No.142 /12/2015-TPL] No. 70/2018.
This rule will be effective on April 1, 2015. Beginning with the 2015–16 fiscal year, the regulation will be used to determine the residential status of Indian citizens who are employed as crew members aboard Indian vessels. For income tax purposes, a crew is classified as Non-Resident Indians (NRI) if they have spent less than 182 days in India.
The whole time frame specified in the Continuous Discharge Document will not be included in the 182-day stay calculation, even if the ship may have travelled within Indian coastal waters.
The Indian crew members' days spent working on such ships outside of India are only tallied from the moment the ship enters Indian territorial waters. If you are a PIO or citizen of India and you reside outside of India and are visiting, you are also eligible for this 10-day increment. The minimum period of days has been loosened to 182 in order to safeguard your taxability (i.e., prevent you from being taxed as a resident Indian) should you want to travel to India for a longer period of time than two months in order to visit relatives or fulfil other commitments.
There is a third category known as Resident but Not Ordinarily Resident (RNOR), in addition to Resident and Non-Resident Indian. You could be classified as a resident but not an ordinary resident (RNOR) if you have recently returned to India after being abroad for a long time.
Taxable income of NRI
Any income that is "earned" in India is subject to taxation if you are a non-resident Indian (NRI). India does not levy taxes on income earned outside of the country. Even when the payment is credited to the non-resident seaman's NRE account with an Indian bank, the salary of a non-resident seaman for services rendered outside of India on a foreign ship will not be included in the seaman's total taxable income. For example, a sailor served in Europe and was in India for fewer than eighteen days. His salary was credited by the employer to his Indian Bank NRE account. The seafarer's overall taxable income will not include this money.
Deductions available for NRIs under Section 80C
Under Section 80C, NRIs may deduct the following expenses from their ITR:
Payment of the premium for life insurance
Children's tuition fees paid
Payment for Insurance Plans with Unit Links (ULIP)
The amount of money used to pay back the loan's principle when building or buying a residential property.
Purchasing ELSS.
Under some circumstances, NRIs are also permitted to deduct under Sections 80G, 80D, 80TTA, 54, and 54EC.
Tax Implications for NRIs
Gifts, Inheritance, Remittances, and Foreign Assets: In particular, remittances, gifts, inheritances, and foreign assets are all subject to different tax implications for non-resident Indians (NRIs) than for Indian taxpayers.
Transfers of funds: NRIs who send money to India may be subject to tax implications depending on the kind and source of the money. Withholding tax may apply to some remittances, particularly if the funds originate from sources of income in India.
Presents and Bequests: Depending on the value and their link to the deceased or giver, non-resident Indians (NRIs) who receive gifts or inheritance in India may be subject to gift or inheritance tax.
Foreign holdings: Indian non-residents who possess assets outside of India must take into account their tax obligations in both India and their home nation. Non-resident Indians (NRIs) may profit from Double Taxation Avoidance Agreements (DTAA) between India and other nations. These agreements shield them from paying taxes on the same income in double the number of jurisdictions.
In order to properly manage their finances and ensure that they are in compliance with all applicable tax laws in both India and their home country, NRIs must be aware of the differences in tax relief.
Filing Income Tax Returns for NRIs
The Procedure and Due Dates: Non-resident Indians (NRIs) have certain procedures to follow when filing returns in India.
Choosing the Appropriate Format: Generally, non-resident Indians (NRIs) are required to file their taxes using Form ITR-2. It is meant for individuals and Hindu Undivided Families (HUFs) who do not get income from employment or other sources.
Getting the Necessary Records: The required paperwork, including Form 16 (if applicable), details about income earned in India, details about income received overseas, and any certificates of tax deducted at source (TDS), must be gathered by Non-Resident Indians (NRIs).
Online or Offline Filing: Non-resident Indians (NRIs) can file their returns online through the Income Tax Department's e-filing system or offline by presenting their completed forms to specific locations.
Fulfilling Deadlines: Generally, NRIs have until July 31 of the assessment year to file their income tax reports. Nonetheless, it is imperative to be informed about any modifications to the dates announced by the tax authorities.
NRIs can fulfil their tax obligations in India and stay away from penalties for noncompliance by adhering to these procedures and filing their returns on time.
Avoiding Double Taxation: DTAA
The Double Taxation Avoidance Agreement (DTAA) allows non-resident Indians (NRIs) to avoid paying taxes twice on the same income. This can save them a huge sum of money. India and other countries have committed to do away with or minimise double taxation under the DTAA. NRIs can avail themselves of these agreements by submitting a relief application in India or their country of origin, contingent on the specific provisions enumerated in the DTAA. Generally, the DTAA provides tax credits, exemptions, and deductions as a means to prevent double taxation. These rules can be used by NRIs to ensure that funds earned in one nation are not subject to taxes in another. NRIs are required to understand the terms of the DTAA that relate to their situation and confirm that they fulfil the requirements specified in the agreement. NRIs can maximise their tax relief plan and prevent double taxation by seeking qualified tax counsel. This will help them to fully utilise the DTAA advantage.
Conclusion
Significant financial and non-financial benefits and restrictions are associated with being an NRI in India. They require the ease of obtaining citizenship in industrialised nations, even when they live with first-rate advantages. Nonetheless, the Indian government grants them a number of exemptions and benefits pertaining to investments, taxes, and legal rights in the nation if they are granted the status of non-resident Indian (NRI).
FAQ
Q1. What determines my residential status for taxation in India?
Your residency status in India for tax purposes is determined by your presence in the country for the duration of a fiscal year. For tax purposes, you are considered a resident if you were in India for at least 182 days in the relevant fiscal year, 60 days in the fiscal year, and 365 days or more in the following four years.
Q2. Which types of income are taxable for NRIs in India?
Non-resident Indians are liable to pay taxes on any income they earn or accumulate in India. This includes salaries received there, real estate revenue, capital gains on the sale of investments made there, and any other income deemed to originate or accumulate in India.
Q3. Why do people become NRIs?
The complete form of the NRI gives a clear explanation of the word's meaning and related status. An Indian who resides overseas for various personal or professional reasons is known as a non-resident Indian. NRIs receive numerous perks from the Indian government when they are outside of their home nation. They travel to India and settle there as NRI citizens because of the benefits the government provides to them. The government offers NRIs a number of financial, educational, and tax benefits. One of the most significant benefits that NRIs in India receive is special quotas at prestigious educational institutions. They also receive other fundamental rights granted to Indian citizens, such as the ability to vote.
Q4. Who is an RNOR?
If you meet one of the following two requirements, you will be deemed a Resident but Not Ordinarily Resident (RNOR) for the duration of a year.
If nine of the ten fiscal years before the current year were spent as an NRI.
OR
You have spent no more than 729 days in India throughout the course of the seven fiscal years prior to the current one.
OR
You are an Indian citizen or a person of Indian descent visiting India, and you have been in the country for at least 120 days but fewer than 182 days in the preceding year. Your total income, excluding income from outside sources, exceeds Rs. 15 lakhs.
OR
You are an Indian citizen whose annual total income, excluding income from overseas sources, exceeds Rs. 15 lakhs, and you are not subject to taxation in any other nation or territory due to your place of abode, domicile, or other comparable factors.
Q5. Are you a Resident or a Non-Resident Indian?
Finding out what your residency status is in India is crucial to figuring out how much tax you owe there. Keep in mind that for each financial year in question, the residence status needs to be verified. For example, if you are absent for a year, you will need to recheck your status the following year if you have moved, travelled, or experienced any other changes. Your status will determine your tax liability in India.
Q6. What does the term ‘Earned’ in India mean?
Any income that you or someone acting on your behalf receives in India or that the law considers to be earned in India.
All revenue, whether it originates or accrues in India or is presumed by the law to do so.
Q7. What does ‘Accrues in India’ mean?
This is outlined in Section 9 of the Income Tax Act (with in mind that everyone is subject to this, taking into account any income that comes in or is earned by them, regardless of their residential status). The following incomes are deemed to have accrued in India under the law if your response is YES:
Revenue from an Indian commercial relationship.
Income derived from any Indian property, asset, or source of revenue.
The gain in capital upon the sale of an Indian capital asset.
Salary income in the event that services are provided in India.
Salary that, as an Indian citizen, you are entitled to receive from the Indian government for work done outside of the country.
An Indian corporation paid a dividend, even if it might have been made outside of India.
Interest, royalties, or technical fees obtained from the federal or state governments, or from particular individuals under specific conditions.
Q8. Which ITR should an NRI file?
NRIs can file forms ITR-2 and ITR-3.
Q9. Can NRIs hold a resident account in India?
NRIs are not allowed to open or maintain a resident account in India.
Q10. Is an NRI liable to pay tax on rental income from house property in India?
It is true that an NRI must pay taxes on the rental income from an Indian-owned home.
Q11. Is an NRI taxable on salary income for the period of services provided in India?
When it comes to services provided in India by a deputation or another agreement, a non-resident's salary income is taxable.
Q12. Is a foreign company liable for paying tax on its branch operations in India?
A foreign company's Indian branch is needed to abide by regulations of Indian tax and pay income tax in India.
Q13. Is an NRI liable to tax in India on the sale of listed equity shares taxable in India?
Capital gains from the selling of shares listed on an Indian stock exchange are subject to taxation for non-resident individuals.
Q14. Are interest earnings received from NRE and FCNR accounts taxable?
In India, interest income from FCNR (Foreign Currency Non-Resident) and NRE (Non-Resident External) accounts is often free of tax.
Q15. What is the deadline for presenting income tax returns for NRIs?
Usually, on July 31 of the assessment year, NRIs must submit their income tax returns.
Q16. How can NRIs steer clear of common mistakes while filing their taxes?
NRIs should use the correct tax form, and claim any appropriate deductions and exemptions. Furthermore, they should also be aware of DTAA rules, and understand their resident status in order to avoid typical filing errors.
Q17. What are the consequences of not filing income tax returns for NRIs?
Indian non-residents who neglect to file income tax returns may be subject to fines, interest costs, and other financial hardships, including making investments or getting loans in India. It could also lead to difficulties adhering to tax laws and legal repercussions.
Q18. Can NRIs claim a refund for excess TDS?
Non-resident people (NRIs) are eligible to get a refund for excess tax withheld at the source by filing an income tax return.
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